CMOC’s investment in Tenke Fungurume and Kokkola is set to further increase China’s hold on global cobalt – by Edward Spencer (CRU – May 18, 2016)

Chinese companies have been seeking to diversify their portfolios for a number of years now, unafraid to invest large amounts in overseas and upstream operations. Last week China Molybdenum Co., Ltd. announced that its wholly-owned subsidiary CMOC Limited had entered into a definitive agreement with Freeport-McMoRan to acquire its 56% share of the Tenke Fungurume copper-cobalt mine in the DRC.

The US$2.65B acquisition is China Moly’s second major deal within two weeks, having agreed to buy Anglo American’s niobium and phosphates business on 28th April for US$1.5B.

While many have focused on the phosphate and copper components of these deals, much of the value of these assets lays in their minor metal associations – namely niobium and cobalt. On completion of the acquisitions CRU estimates that China Moly will be the world’s second largest producer of both ferroniobium and cobalt in addition to being the fourth largest producer of molybdenum. CRU has discussed at length the rationale behind China Moly’s decision to purchase Anglo’s phosphate and niobium assets in Brazil in a previous Insight*. Here we address how the company will attempt to make the most of its new cobalt business.

CMOC’s Tenke Fungurume share purchase is the largest in the copper market since the sale of Glencore’s Las Bambas project to a Chinese consortium led by MMG in Q2 2014. While the acquisition was unexpected it is not altogether surprising considering the company’s recent track record: In 2013 the company purchased Rio Tinto’s 80% stake in Northparkes, a copper/gold operation in New South Wales, for US$820M. CMOC then continued on its diversification strategy in July 2015, when it bid for Barrick’s Zaldivar Copper Mine in Chile. Although the company eventually lost out to Antofagasta, the offer shows the company’s desire to acquire, large scale, low-cost copper operations.

With a large war chest and a clearly stated policy of seeking diversification and internationalisation opportunities in the resources industries, the purchase of the majority share of Tenke Fungurume was a logical step: The mine has extensive reserves (136 million tonnes of proven and probable ore at 2.7% copper and 0.4% cobalt), potential for expansion and the capability to deal with complex ores typical of the region by using Pressure Acid Leach technology. However, arguably one of largest selling points is that it is one of the world’s largest and lowest-cost cobalt producers.

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